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State Variations in the Food Stamp Benefit Reduction Rate for Earnings: Cross-Program Effects from TANF and SSI Cash Assistance

by Kenneth Hanson and Margaret Andrews

Economic Information Bulletin No. (EIB-46) 36 pp, March 2009

States have adopted different rates at which to reduce
households' Temporary Assistance for Needy Families (TANF) benefits
as households earn more income. Because Food Stamp Program benefits
depend on total income, including assistance income, the reduction
in TANF benefits affects food stamp benefits for those who
participate in both programs. Even when benefits are reduced
because of higher earnings, households are better off with the
additional earnings because the reduction in benefits is less than
the increase in earnings.

What Is the Issue?

In 2005, 41 percent of the 10.8 million households participating
in the Food Stamp Program also received cash assistance from TANF
and/or the Supplemental Security Income (SSI) program. Of these
multiprogram participants, 11 percent also earned some income
(500,000 households). For these households, the rate at which
increases in household earnings reduce food stamp benefits depends
on the effect of earnings on other assistance programs
(cross-program effects). Different State-level policies on TANF
earnings deductions have resulted in variations in food stamp
benefits across States. The extent of the variation affects the
degree to which the Food Stamp Program provides a uniform level of
benefits to recipients across the country.

Cross-program effects and State-level differences in food stamp
benefits are important considerations in integrating government
assistance programs into a support system for low-income
households. This study provides estimates of State-specific
reduction rates in food stamp benefits as earnings increase, as
well as estimates of cumulative benefit reduction rates (that is,
reductions in food stamp, TANF, and SSI benefits combined) as
earnings increase.

The analysis also examines the impact on food stamp benefits of
the excess shelter cost deduction. Many food stamp recipients spend
a large portion of their income on shelter (rent/mortgage,
utilities, and property taxes). Food stamp households can take a
deduction for shelter expenses that exceed half of their monthly
net income. A household's benefit reduction rate for an increase in
earnings depends, in part, on whether the household uses the
shelter deduction.

What Did the Study Find?

State variations in TANF earnings deductions (portion of
earnings not counted as income) affect the net household income on
which food stamp benefits are based, resulting in differences in
the rate at which food stamp benefits are reduced by an increase in
earnings. Depending on the State, an extra dollar of earnings
results in a change to food stamp benefits ranging from a reduction
of 36 cents (Arkansas, Connecticut, and Wisconsin) to an increase
of 9 cents (Louisiana, Mississippi, South Carolina, Tennessee,
Texas, and Wyoming). The other States fall in between. A number
fall into similar groupings based on TANF earnings deduction
rates:

• Four States have a TANF earnings deduction of 33.3 percent.
Each additional dollar of earned income in these States reduces
food stamp benefits by 5.99 cents (AK, DE, GA, and KY).

• Five States have a TANF earnings deduction of 20 percent.
Additional earned income has no effect on food stamp benefits (AL,
MI, NE, SD, and VA). In these States, the decrease in food stamp
benefits due to extra earnings is precisely offset by the increase
in food stamp benefits due to the earnings-induced reduction in
TANF benefits.

• Six States have a TANF earnings deduction of less than 20
percent. Each additional dollar of earned income leads to an
increase in food stamp benefits (LA, MS, SC, TN, TX, and WY).

• Three States (AR, CT, and WI) have a fixed TANF grant amount,
which means that food stamp benefits adjust only by the direct
effect of earnings on food stamp benefits-there is no cross-program
effect on food stamp benefits because there are no earnings-induced
changes in TANF.

• The remaining eighteen States have a TANF earnings deduction
that ranges from zero to one hundred percent.

Given State policies regarding TANF earnings deductions, the
average "cumulative" benefit reduction rate on earnings is about 70
percent (for nonmaximum use of the shelter deduction). In other
words, taking into account combined program benefits, a food stamp
household that earns an additional $1 would lose 70 cents' worth of
food stamp and TANF benefits, which combines a 61-percent reduction
in TANF benefits with a 9-percent reduction in food stamp benefits.
The 70-percent reduction is about double the effective tax rate on
earnings for a food stamp household that does not receive TANF cash
assistance. Even with this high rate of benefit reduction, however,
households are better off with the additional earnings because the
reduction in benefits is less than the increase in earnings.

How Was the Study Conducted?

We derived the food stamp benefit reduction rates for earnings
from the food stamp benefit formula under alternative assumptions
about whether the household receives cash assistance from TANF or
SSI. State TANF earnings deductions were from the Urban Institute's
Welfare Rules Database for 2005. Data from USDA's Food Stamp
Program Quality Control Public Use data file for 2005 were used to
determine the proportion of the food stamp case-loads that were
subject to different benefit reduction rates.